Market falls after Bernanke’s remarks

NEW YORK » Wall Street sank for a second straight session yesterday after Federal Reserve Chairman Ben Bernanke said the slumping housing market remains a "significant drag" on the economy.

Bernanke's speech last night in New York elevated concerns that the summer's credit tightness might persist into the winter -- a sobering thought for investors, who are sifting through mixed third-quarter earnings and watching energy costs rise.

"First of all, the worry is we're getting more bad news on housing. No. 2 is higher oil prices. That's a pretty bad combination," said Hugh Johnson, chief investment officer of Johnson Illington Advisors.

Crude oil prices spiked to another record above $88, and a National Association of Home Builders' index that tracks developers' expectations of future home sales fell for the eighth consecutive month to the lowest point since January 1985.

Also yesterday, Treasury Secretary Henry Paulson echoed Bernanke's concerns, saying the housing market is a significant risk to the economy.

The ensuing uncertainty on Wall Street about the economic outlook "comes at a time when earnings results are not particularly exciting -- in fact, are dismal," Johnson said.

A day after Citigroup Inc. reported a steep third-quarter profit decline and announced plans with a consortium of banks to set up a fund to help bail out the credit markets, another major bank released disappointing results.

Wells Fargo & Co. shares fell 4 percent after the bank said third-quarter earnings increased by less than analysts anticipated and that it boosted loan loss reserves in preparation for more problems in consumer credit.

The Dow Jones industrial average fell 71.86, or 0.51 percent, to 13,912.94, after falling more than 100 points earlier in the session.

Broader indicators also declined. The Standard & Poor's 500 index slid 10.18, or 0.66 percent, to 1,538.53, and the Nasdaq composite index dipped 16.14, or 0.58 percent, to 2,763.91.

Declining issues outnumbered advancers by about 8 to 3 on the New York Stock Exchange. Volume came to 1.29 million shares.

Bond prices rose as investors pulled money out of stocks. The yield on the 10-year Treasury note, which moves inversely to the price, fell to 4.66 percent from 4.68 percent at Monday's close.

The dollar rose against most currencies. Gold also rose.

Bernanke said Monday the deepening housing slump will probably keep dragging on economic growth, but he again pledged to "act as needed" to help financial markets that seized up this summer. He also said inflation remains in check -- which could convince policymakers to cut interest rates for the second month in a row at their Oct. 30-31 meeting.

But while core inflation -- which excludes volatile food and energy prices -- is mild, oil prices are pushing further into uncharted territory on speculation about supply disruptions.

Crude futures rose $1.48 to a record close of $87.61 a barrel on the New York Mercantile Exchange, after briefly surpassing $88.